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Markets Daily, 11 January

 

 

 

  • Euro Higher on ECB  Minutes: Shift from Loose Monetary Policy
  • U.S. stock Market aims to Rebound from Yesterday´s Bond Jitters
  • Oil Rises on Shrinking Stock Piles
  • German 2017 GDP Growth Strongest in 6 Years

 

 

With Wednesday’s turbulence behind them. U.S. equity futures rose, Treasuries steadied and oil hit a three-year high.

The Bank of Japan maintained the amount of its bond purchases on Thursday. A cut in its buying of longer-dated debt earlier this week had fanned worries the BOJ may be moving to turn off its stimulus. A tightening or hawkish policy by the BoJ would undoubtely spell trouble  to the markets, and could ignite a global sell-off, and Kuroda may think twice before changing paths, but is not the case…yet.

 

 

As Bloomberg put it.” While traders have tried to shake off some of the concerns that led to Wednesday’s declines, they’re still struggling to find fresh reasons to extend a rally that took global stocks to or near record highs earlier this week. A string of earnings releases starting with JPMorgan Chase & Co. and Wells Fargo & Co. on Friday might offer them more direction.”

 

The euro traded at $1.1945, nearly flat on the day, and holding above Tuesday’s low of $1.1916. There was more upbeat data for the shared currency though. German economy grew at the strongest rate in six years last year a preliminary estimate from the country’s statistics office showed, although it was slightly under some peoples’ forecasts.

 

Germany’s economy expanded by 2.2% last year, highest rate since 2011 when the economy grew by 3.7%. GDP expanded by 1.9% in 2016 and 1.7% in 2015

 

Futures for the Dow Jones Industrial Average YMH8, +0.15% were up 21 points, or 0.1%, to 25,376, while those for the S&P 500 index ESH8, +0.15%  added 3.1 points, or 0.1%, to 2,753. Futures for the Nasdaq-100 index NQH8, +0.11%  were up 8 points, or 0.1%, to 6,685.

China’s foreign-exchange regulator on Thursday dismissed a Bloomberg News report suggesting Beijing is looking to pare back on U.S. bond buys as “false news.” The yield on the 10-year benchmark note TMUBMUSD10Y, +0.07%  was trading down about 2 basis points at 2.543% on Thursday, falling for the first time in six sessions. Yields for the benchmark Treasury note, which is used to price everything from car loans to mortgages, pushed above 2.6% for the first time since last March.

China: The stock market continues to climb.

Rapidly rising bond yields, which move inversely to prices, can weigh on equities because the bond market becomes a more attractive investment compared with stocks. When the gain, however, comes from an ultralow base, it can signal that investors are becoming more confident about the economy, which can stir an appetite for stocks over haven bonds.

US Jobless Claims Highest in Over 3 Months

The number of Americans filing for unemployment benefits increased by 9 thousand to 261 thousand in the first week of 2018, well above market expectations of 246 thousand.

2016 ended with a 13% YoY decline in initial jobless claims. However, thanks to a late-year surge  2017 saw initial claims rise 6.5% YoY.

 

Economy News:

The chief executives of more than 100 major companies and trade organizations have sent a letter to congressional leadership, urging them to pass legislation by the end of next week protecting the status of Dreamers. IBM, GM, Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Under Armour (NYSE:UAA) and Blackstone (NYSE:BX) are among the firm backing the effort, who estimate that allowing DACA to expire would result in a $215B hit to the economy.

The Mexican peso and Canadian dollar are trimming losses after White House and Canadian officials shot down a Reuters report stating that Ottawa was increasingly convinced that President Trump will pull out of NAFTA. Canada is also challenging the Trump administration’s use of tariffs in a complaint filed with the WTO, just weeks before the next round of NAFTA negotiations begins in Montreal.

“We’ve noticed recently that protectionist voices have been rising in the U.S.,” Chinese Ministry of Commerce spokesman Gao Feng said in a briefing, criticizing Washington for blocking a high-profile takeover. Ant Financial’s (NYSE:BABA) planned $1.2B purchase of MoneyGram (NYSE:MGI) was rejected last week over national security concerns. Sources also told Reuters that Huawei’s planned deal with AT&T (NYSE:T) collapsed because of security matters.

China is diversifying its foreign exchange reserves in order to safeguard their value, according to the country’s currency regulator, while dismissing a Bloomberg report stating the government was halting or reducing its U.S. debt purchases. Chinese officials were said to have recommended the move amid a less attractive market for Treasury bonds and rising U.S.-China trade tensions.

The German economy expanded at the fastest pace in six years in 2017, with GDP rising 2.2% and marking the eighth year in a row that the economy has grown. Recent reports from company surveys on industrial production signaled a lively performance in the final quarter, and strong business sentiment and order flows may boost prospects for 2018.

The U.S. has now become a net exporter of natural gas on an annual basis for the first time since at least 1957. Net exports averaged about 0.4B cubic feet per day last year, flipping from net inflows of 1.8B in 2016, according to Victoria Zaretskaya, an analyst for the Energy Information Administration. The numbers will be officially released by the agency today.

The alliance between OPEC and non-OPEC producers, including Russia, could continue in some shape or form beyond their current deal to curb oil output. “There is a very good chance that they could stick together and put a shape around that alliance,” UAE Oil Minister Suhail al-Mazrouei declared. “Getting others to join OPEC… and achieving enough to incentivize investments into this industry, is something in which interest is growing.”

President Trump is expected this week to extend relief from economic sanctions to Iran, citing progress in amending U.S. legislation that governs Washington’s participation in the nuclear deal, but the move will likely be accompanied by new penalties targeting human rights and cyber violations. Trump will make a final decision today after meeting with his national security team at the White House.

 

Today’s Markets 

In Asia, Japan -0.3%. Hong Kong +0.1%. China +0.1%. India +0.2%.
In Europe, at midday, London +0.1%. Paris flat. Frankfurt-0.2 %.
Futures at 6:20, Dow +0.1%. S&P +0.1%. Nasdaq +0.1%. Crude +0.6% to $63.95. Gold -0.1% to $1318.70 Bitcoin -9.8% to $13432.
Ten-year Treasury Yield flat at 2.54%

Stocks News

South Korea is planning to ban cryptocurrency trading via exchanges, according to Justice Minister Park Sang-ki, sending bitcoin prices plummeting and throwing the virtual coin market into turmoil. It’s a major development as the country is one of the biggest markets in the crypto space. The news also follows yesterday’s warning from Warren Buffett that speculation in bitcoin, and other cryptocurrencies, “will have a bad ending.”

HSBC has made a bunch of hires from rivals, including Goldman Sachs (NYSE:GS), as the bank revamps its equities business in the Asia-Pacific region and expands a majority-owned securities venture in China. Expanding HSBC’s China business has been one of the top priorities of outgoing CEO Stuart Gulliver, who sees the bank’s business in the Pearl River Delta region generating an additional $1B of pretax profit over the coming five years.

Berkshire Hathaway has promoted two of its top executives, Gregory Abel and Ajit Jain, adding them to its board and cementing their status as the front runners to succeed Warren Buffett. Abel has been named vice chair of Berkshire’s (BRK.A, BRK.B) non-insurance operations, and Jain vice chair of insurance operations. Buffett has been head of the $500B conglomerate since 1965.

Under pressure to find new growth sources, Xerox (NYSE:XRX) is in talks with Japanese camera maker Fujifilm (OTCPK:FUJIY) for a potential major deal. It could include a change in control of Xerox, WSJ reports, but wouldn’t be a full takeover. Xerox has been targeted by activist investor Carl Icahn as it struggles to reinvent its legacy printing business. XRX +8.1% premarket.

In a transaction expected to top $2.5B, Nestle (OTCPK:NSRGY) plans to pick a buyer for its U.S. chocolate business by the end of this week. Italy’s Ferrero is seen as a front-runner to rival Hershey (NYSE:HSY), according to several Reuters sources, who said the Nutella-maker was keen to boost its presence in the U.S market.

More M&A in the media sector… With a Disney (NYSE:DIS) deal set to relieve it of numerous media assets and provide for a refocus on news and broadcasting, Twenty-First Century Fox (NASDAQ:FOXA) is in final talks to buy about 10 local stations from Sinclair Broadcast Group (NASDAQ:SBGI). That in turn would help Sinclair please regulators who need to approve its $4B takeover of Tribune Media (NYSE:TRCO).

New claims are surfacing against Ford (NYSE:F), alleging that the automaker used a software device to cheat on emissions tests on 250 and 350 Super Duty diesel pickup trucks. A spokesperson for the carmaker responded to the lawsuit, calling the allegations “baseless.” The vehicles are advertised by Ford as the “cleanest” super diesel ever.

Calling it “essentially a flying car”, Intel (NASDAQ:INTC) capped its keynote address at this year’s CES by letting an 18-rotor air taxi fly across the stage. That marks the first time the Volocopter VC200, which can cover a distance of 27 kilometers and charges in less than 40 minutes, flew in North America. “What Intel sees in this technology is an enabling of a whole new market,” said Jan Stumpf, the chief of architecture for Intel’s drone group.

More from CES… Boeing (NYSE:BA) unveiled a new unmanned electric VTOL cargo air vehicle prototype that’s designed to transport payloads for possible future cargo and logistics applications. The aircraft, built in less than three months, is powered by an environmentally-friendly electric propulsion system and can carry up to 500 pounds.

Pursuing other ways to capitalize on the electric car boom, Rio Tinto (NYSE:RIO) has dropped out of the bidding for Nutrien’s 32% stake in Soc. Quimica & Minera de Chile (NYSE:SQM), one of the world’s top lithium producers, Bloomberg reports. Other strategic bidders remain interested in the holding. Nutrien’s interest in SQM is worth about $5B at current market prices. RIO +0.4% premarket.

The New York State Police has launched its first aerial drone program to help support law enforcement missions like public safety, disaster response and traffic safety. Governor Andrew Cuomo said the drones will be more cost-effective than manned aircraft and can be used in dangerous situations and environments without putting State Troopers in harm’s way. Related stocks: AMBA, AVAV, DJI, HON, INVN, IXYS, TRMB, OTCQB:DRNE

ICE agents have arrested 21 undocumented immigrants in nearly 100 raids of 7-Eleven (OTCPK:SVNDY) franchises across 17 states and the capital, giving owners a tight deadline to prove other employees are authorized to work. “ICE will continue its efforts to protect jobs for American workers by eliminating unfair competitive advantages for companies that exploit illegal immigration,” said ICE Deputy Director Thomas Homan.

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